How Much Can FDIC Do For Banks And Their Depositors

Shelly Banjo

The failure of IndyMac Bank has depositors worrying about what funds are insured by the Federal Deposit Insurance Commission. Here are answers to some commonly asked questions:

Question: If a bank fails, like IndyMac did last week, what protects customers' deposits?

Answer: The Federal Deposit Insurance Corp. covers individual accounts up to $100,000 per deposit per bank or $250,000 for most retirement accounts (and that includes any accrued interest). The agency may increase the coverage, but that can't happen by law until 2011.

The FDIC doesn't insure money invested in stocks, bonds, mutual funds, life-insurance policies, annuities or municipal securities, even if these investments were bought from an insured bank.

But sometimes deposits sneak north of $100,000 because the customer isn't paying attention. "Regardless of the health of your bank or condition of the overall economy ... returns are never high enough to justify the exposure of uninsured deposits," says Greg McBride, senior financial analyst at

Question: What do depositors do if they have more than $100,000 they need to put in the bank?

Answer: One way to protect the money is to hold accounts under that sum at a few separate banks. For those wanting to keep money at the same institution, perhaps for convenience's sake, a sound strategy is to open different accounts.

For instance, a married couple could each open an individual account (up to $100,000 in each), a joint account (up to $200,000), two separate individual retirement accounts ($250,000 each) and two revocable trust accounts, payable on death, naming each other as beneficiaries ($100,000 each). Together that is more than $1 million of insured deposits.

Also, they could set up additional revocable trusts insured up to $100,000 for other qualified beneficiaries such as parents, siblings, children and grandchildren.

Question: Are there any pitfalls to this multiple-account, single-bank approach?

Answer: Depositors should make sure their accounts are properly titled at the bank. Bank employees may not always know the correct distinctions.

Because of misinformation from Countrywide Financial Corp., "I had $100,000 in funds uninsured for a considerable amount of time," says Scott Marberblatt of Swampscott, Mass. He held $100,000 in a certificate of deposit and put $100,000 in a savings account with two beneficiaries. But the bank did not properly title the savings account with the words "In Trust For," so the second $100,000 went uninsured.

If Countrywide had failed -- it ended up being acquired by much stronger Bank of America Corp. -- then he would have had a problem.

To verify all accounts are FDIC-insured, contact the FDIC consumer hot line at 1-877-275-3342 or use the deposit insurance calculator at

Question: Should a bank go under, are depositors with more than $100,000 in one account out of luck?

Answer: Not entirely. Amounts over $100,000 can be partially reimbursed after some time and hassle, with the money coming from sales of the failed bank's assets. This resembles how creditors are paid in bankruptcies. The schedule varies, according to FDIC dictates.

In IndyMac's case, depositors will have access to half of their uninsured deposits Monday via an FDIC advance on asset-sale proceeds. They can withdraw that money, but the FDIC says they don't need to do so. In general, depositors eventually get 70% to 80% of their funds returned.

Question: Is it possible to get warning that a bank will go under?

Answer: No. The FDIC says it works aggressively behind the scenes with what the agency deems "problem banks." It doesn't want to set off a panic, where customers pull out their deposits. "We cannot alert customers directly before we close a bank," said Andrew Gray, FDIC spokesman. For the time being, IndyMac continues to operate, but under regulators' management.

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